At some point, you’ve probably gotten advice on the “best” way to invest your money.

Although you know you could earn more than the meager .25% interest on your savings account, just the term “investment” can be intimidating.

It can seem like there is some sophisticated secret formula only the wealthy people on Wall Street know. Investing jargon is confusing and you’re afraid that you don’t have enough information to make good investing decisions.

Besides that, if you do decide to invest, where is the best place to invest, how do you go about doing it, and, for goodness sake, what if you make a huge mistake and lose it all?

Investing can sound confusing and intimidating, but it doesn’t have to be that way. The most important thing you can do is get past the fear and just do it. Believe me, a few years down the road, you’ll thank yourself.

Why invest now?

When we were in our early 20s, my husband had just landed his first permanent, salaried position. Immediately, he wanted to start putting the minimum the company wouldmatch into a 401k.

At the time, I knew nothing of retirement accounts and, though I understood compound interest, had never really considered putting money toward retirement at such a young age.

Retirement seemed like ages away, so why cut the paycheck at this point? Why should we tighten the budget even more when we never seemed to have anything left at the end of each month anyway?

Well, my husband persisted and I caved. We started putting 6% of his income into the 401k at the age of 24, with a company match of 50%. I admit, even the free money wasn’t appealing to me at the time (duh!?).

Fast forward to today. Am I ever glad my brilliant husband (you’re welcome, dear) convinced me on this one. Although we didn’t contribute more than the minimum for the company match over several years, it helped us get a decent start. At the age of 41, we are now less than 10 years away from retirement.

The sooner you start investing, even if it’s just a small amount, the more you will have later.

Start small and watch it grow

The thought of cutting back your paycheck can seem impossible when it always disappears almost as soon as it arrives.

Even if you feel like there is no room in the budget to put any toward a retirement account, try a small amount for a month or two. It doesn’t matter how much you choose to invest, the most important step is to start. Make it automatic so you never see that money in the first place.

The beauty of compound interest is an alluring prospect. I like to think of it like planting a seed. Plant that little seed, water it regularly, make sure it has enough light and that seed will turn into a large, beautiful plant (bonus if it provides food!).

Let’s say you come up with $50/month and you invest that amount each month for five years beginning at the age of 25. Even if you stop investing at the age of 30, assuming a 7% return, the original $3000 you invested turns into $10,186 at the age of 45 and $39,417 at the age of 65! (Just think of what $100, $200 or even more each month could become!)

Play around with investment calculators to see how investing just a little money now can turn into so much more later (check out Dave Ramsey’s Investment Calculator to run your own numbers).

How to start investing

If you want to learn more, educate yourself on investment options, but if you’re just not that interested at this point, that’s okay.

You don’t have to know the ins and outs of 401ks, IRAs, and SEPs to get started.

If you are employed at a job that offers a retirement account, such as a 401k or 403b, start there. Give human resources a call or shoot them an email to ask how to sign up.

Those who are self-employed can contribute to a traditional or Roth IRA (when income requirements are met) and a SEP or one-participant 401k plan.

If I lost you there, no worries! Several online investment services offer user-friendly, automatic investment options, making it easy to open an account.

These online investment services feature robo-advisors – a great option for people who don’t have much interest in investing, have only a small amount to invest at first, and/or want to take a hands-off approach.

The great thing about these services is they offer user-friendly apps for enrolling and investing that guide you painlessly through the process. A few companies offering these services are Betterment, Wealthfront, and WiseBanyan.

If you are selecting your own investments through a 401k or IRA, simply start with low cost index funds. Index funds are widely diversified and simply track the market. They’re passively managed, which keeps costs low, allowing you to invest more of your hard earned money.

With investing, there are inevitably going to be ups and downs, just take this advice from Warren Buffett’s right hand man,

Don’t freak out if the market tanks, be patient and wait it out, no matter how hard it is. Over years and years, overall the market has shown positive returns.” -Jack Bogle,The Little Book of Common Sense Investing.

It’s more risky not to invest. Being afraid to start or take a risk is understandable. But you don’t have to be an expert or have a ton of money to get started. You will thank yourself for taking this important step toward your financial future.

What scares you most about investing? If you already invest, what advice would you give those who are afraid to take the leap?

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Comments

Hi Francesca! Thanks for stopping by. A 401k is a tax deferred, employee funded retirement account in the U.S. (and some employers will match a portion of the employee contributions). So the contributions (up to $18000) are tax deductible. It’s a great way to lower the tax bill and save for retirement.

It can be difficult putting money aside that can’t be touched for so long, I know that was my wife’s main reason for being hesitant. But the sooner you start, the sooner you’ll have enough money set aside to retire (yes, possibly retire early!).

I had a similar concern about putting money aside that couldn’t be touched for a while. One thing I did to mitigate that fear was set up two accounts and funneled the same amount of money into each one on a monthly basis. The first was a traditional IRA that I later converted to a Roth (work then did not have 401Ks). The second was a taxable account. While I pay taxes on the gains, dividends and interest in the second account, it’s also accessible at any time without penalties.

Your retirement savings doesn’t have to be in a retirement account. You lose out on some of the tax benefits if you put investments in a brokerage account, but you gain flexibility and if you are thinking early retirement you’ll need accessible investments anyway.

What a great way to squelch that fear of investing, Emily! We’ve always used tax advantaged accounts, but just opened our first taxable account recently. You are right, one huge advantage to the taxable account is the liquidity, so you don’t have to worry about having your money tied up for years if you need it.

It is a bit hard to invest just because it takes so long to see the effects of compound interest! You can only show someone a spreadsheet so much. The true commitment to investing comes when people look at their account statement down the road! Nice post!

Thanks to a zillion mitigating circumstances, we got a late start, and we’re still not putting in as much as I’d like. I’m trying to fix that this year/next year. I’d like to fully fund a SEP no later than 2017. We’ll see how it goes, but if I’m able to put away around $12,500 a year for the next three-ish decades, at least we’ll have something put aside if I do have to retire. Not enough to retire on completely, but… Well, for now I’m just going to focus on hitting the goal.

An early start can certainly make things easier, but the fact that you are working on increasing how much you invest now will make a huge difference when retirement rolls around. And, as with any financial goal, it’s those small wins that create the momentum to reach larger goals. I bet you’ll find it’ll get easier with each passing year. Thanks for stopping by, Abigail!

With investments, I think it’s hard to find that line between regular installments (right off the top, so you don’t even notice), regular learning and staying informed, yet trusting someone else with your money – and then not obsessing over it. I think that the idea of investing scares different people in different ways. But you’re right – the scariest thing of all is not to invest.

“Not obsessing over it” is a huge part of investing – the ups and downs of the market can be upsetting if you watch it every day. Trusting someone else with your money is a huge factor as well and honestly, I don’t pay anyone else to invest our money (fees add up quickly). For those who are scared of investing for one reason or another, I think just starting out with a small amount is the best way to go.

We take a hands-off approach to investing and invest most of our money in low cost index funds with Vanguard. We have a Solo 401(k) for our retirement accounts now, but we once had SEP IRAs. My advice is to invest in something simple so you don’t have to stress out over it every month.

Thanks for stopping by, Holly! Our investing approach is very similar to yours. We use Vanguard for our IRAs and have them all in low cost index funds and we also have a 401k through my husband’s employer. The Solo 401k limits are fantastic compared to the employer sponsored programs. Keeping it simple is great advice – just fix it and forget it (the index funds are great for that).

Good thing your husband pressured you into getting the company match otherwise you may be more than 10 years out! I think if people do not want to get into investing they should just throw money into Index funds at Vanguard and watch it grow. I am very interested to see how RoboAdvisors perform as they have even lower fees which makes them very appealing. Should be fun to watch.

Yes, that’s so true, Stefan – I’m thankful for his persistence (stubbornness?). I think we would have eventually started investing, but who knows how long it would have taken. Vanguard makes it easy to open an account and I would recommend their index funds, for sure. We are trying our a roboadvisor now and so far, so good. It will be interesting to see how they perform.

Hi Melanie! It’s great that you’ve gotten started! Yes, investing returns are definitely better than savings accounts over the long haul and it’s generally fun to watch it grow (just don’t watch too closely during the times when the market is down!).

And thank you for a great post. I, personally, was rather afraid of investing in any way when I was younger. And like you, when I was in my 20s, I didn’t understand the value of investing early. I kind of beat myself up about that from time to time now. 🙂

I kept hearing that the market was more like going to the casino than actually investing when I was younger. I guess it was a misconception among the people I was close to back then. I was also intimidated by the fact that it seemed so difficult to invest – that you needed special accounts for the market and all that. So I avoided investing and decided to spend whatever money I had on other things.

Today things have changed so much in my opinion. It’s so easy and accessible to invest. There apps and websites that will help and guide you and the stuff like robo-advisors you mention, Amanda, makes it even easier and even more automatic. And for many people, the automation is almost needed to get investing.

The thing that finally got me really interested in investing, when I got wiser, was compound interest. And if people aren’t sure about why they should invest, or if it’s worth it, I agree with you and I think they really should check out a calculator for compound interest to see what it can do.

Thanks for the comment, Anders! 🙂 I completely agree. It seems easier to invest now than it did in my 20s (not just because I didn’t understand it, but literally easier). It’s easier to access accounts and many of the investing tools now are user friendly and easy to understand.

If I had seen the power of compound interest when I was younger, I may have been more inclined to do it. I still play with those calculators all the time and love to see how a little now can grow into a lot later on. Thanks again for stopping by!